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Articles

California Governor proposes tax increases

California Gov. Jerry Brown has initiated an effort to garner voter approval to temporarily raise state sales tax 0.5 percent and hike up personal income taxes on the rich, reported WWD.

Speaking to the state legislature, Brown declared that these tax hikes, which are backed by retailers, would be a critical move in addressing the state’s immense budget deficit and supporting California on the path to economic recovery.

With its high unemployment and poor economic growth, California is still in economic hot water. Fully 11.3 percent of Californians are out of jobs, representing the second highest unemployment rate in the United States, according to November statistics. This rate is a sharp contrast to the nation’s overall percent of 8.7 jobless.

Brown argues that the United States should learn from Europe’s economic troubles, which were partly caused by the region’s debt crisis. “Prudence and paying down debt is the best policy,” he maintained to WWD.

The good news, he declared, is that California “is on the mend.” The state deficit is currently one-quarter of last year’s $20 billion, due to slashed public services and taxes from improving businesses.

Should the referendum be approved during the Nov. 6 elections, state sales tax would bump up half a percent to 7.75 percent for the period Jan. 1, 2013, through Jan. 1, 2017. The hike would reestablish half of the sales tax income lost July 1, when lawmakers allowed a previous temporary increase to expire and the tax lowered by one percent.

“It’s fair. It’s temporary,” Brown said of the increase, predicted to rake in $6.9 billion.

The higher personal income tax for wealthy Californians would commence this tax year and end 2017. Those with incomes from $250,000 to $300,000 would pay 1 percent more, those with incomes from $300,000 to $500,000 would pay 1.5 percent more, and those earning more than $500,000 would pay 2 percent more.

Retailers are famous for protesting tax hikes. However, out of concern for poor levels of consumer spending, department stores and other businesses are still supporting Brown’s initiative to stimulate the state’s economy, reported Bill Dombrowski, president and CEO of the California Retailers Association.

Dombrowski reports retailers are amassing funds to back the new referendum. “It’s a tough sell,” he asserted, estimating the proposal has a 50 percent chance of passing. The ballot will face competition from other tax measure increases from citizen groups, including one that would provide funding for public schools.

“It’s looking like it’s going to be a really large ballot” bursting with tax initiatives, Dombrowski said. “Voters get frustrated and vote no.”

Californians across party lines have objected to tax hikes since Prop 13 in 1987, which restrained property tax increases. Corey D. Cook, a political science professor and director of the University of San Francisco’s Leo T. McCarthy Center for Public Service and the Common Good, predicts the measure may help the public grasp that public service cutbacks are a necessary evil.

A recent Public Policy Institute of California survey showed that 60 percent of possible voters back both of Brown’s tax increase measures.

According to an evaluation of the governor’s proposed 2012-2013 budget now being considered, economists are positive overall about California’s economy.

“The California economy is being pulled along, in part, by healthy wage and salary growth in high-income markets — most notably the technology sector in Silicon Valley and other areas of the state,” the Legislative Analyst’s Office said.

In a recent survey, 49 percent of respondents claimed their finances are approximately in the same state as a year ago, 35 percent reported they are doing worse and 15 percent believed their situation has improved.

Another reason to be optimistic is the “Facebook Effect and the possibility of hundreds of millions of dollars of additional (state) revenues related to the Facebook initial public offering,” the report declared regarding the social media firm’s pending stock offering and the accompanying capital gains taxes.

“Consumer spending also has picked up in California, as individuals and firms return to more normal consumption behavior fueled, in part, by pent-up demand,” the LAO said of retail expectations, asserting that the trend could possibly waver.

Although there is cause to maintain optimism, “The results…highlight the fragility and unevenness geographically of our recovery and the imperative for doing everything we can to foster an economic and policy climate that encourages investment and hiring,” Jim Wunderman, council president and CEO, said.